RESCUING THE S&Ls; : First in Line : Regulators Take New Look at Pacific Savings’ Future
Except for a 3 p.m. staff meeting at Pacific Savings Bank headquarters, there was little evidence Tuesday that a joint task force of federal regulators had just moved in to assume oversight of the insolvent Costa Mesa institution.
Customers continued to come and go, employees went about their business as usual, and managers of the troubled thrift kept operating the same way they have for months.
Despite the flurry of attention focused on Pacific Savings, little actually changed as the S&L; became one of the first targets in the Bush Administration’s intensive effort to clean up the nation’s savings and loan industry.
Pacific, which was put into a conservatorship Tuesday, is one of more than 500 savings and loans across the country that have lost billions of dollars as a result of industry deregulation, economic downturns, mismanagement and, in some cases, outright fraud.
The change in supervision is expected to have no noticeable effect on Pacific Savings’ customers, whose deposits continue to be insured up to $100,000 each.
Through much of last year, regulators and industry leaders viewed the S&L; as “salvageable” and a likely candidate for a merger with a healthy organization.
For now, though, anyone who wants to buy Pacific Savings may have to wait. Members of the joint task force, composed of banking and S&L; regulators, said they aren’t sure exactly who would be authorized to approve a sale.
Meantime, “it’s business as usual” for the S&L; and consumers, one regulator said. The same managers hired 20 months ago from Glendale Federal Savings & Loan will continue to operate Pacific Savings under the same business plan as before.
“I do feel it’s a positive process, and we intend to cooperate,” said Harvey A. Lynch, a GlenFed executive acting as president of Pacific Savings. “We’ve been told that the business plan is consistent with what the banking and savings and loan regulators believe is prudent.”
Part of the blame for the savings industry debacle has been pinned on deregulation in 1982, which ushered in an entrepreneurial management spirit and, some say, a lax regulatory attitude.
Many S&Ls; jumped at the opportunity to make nontraditional investments, such as direct ownership in real estate ventures. And many of those investments eventually turned sour, leaving the federal S&L; deposit insurance fund all but bankrupt.
Pacific Savings lost a total of more than $262 million in the last 6 years as it pursued a strategy of selling off many of its branches while favoring commercial lending in California and speculative investments in Texas and other Southwest states.
Members of the joint task force at the S&L; and Pacific Savings personnel viewed Tuesday’s action as little more than a “regulatory shift of power.”
“Liquidation is not an option for us,” one Pacific executive said. “As far as we know, we’re still being considered for sale.”
But banking regulators, particularly the Federal Deposit Insurance Corp., are known for acting quickly and, often, for liquidating ailing institutions.
“I think this means that the chances Pacific could be prepared for liquidation are greater now than ever before,” said Edward Carpenter, a Costa Mesa banking consultant. “The goal now is to accomplish quick reviews and quick actions.”
FDIC officials acknowledged that their aggressive approach will speed up the handling of failed S&Ls; once Congress approves the funds for the program laid out Monday by President Bush.
All insolvent S&Ls; in Southern California will likely be put into conservatorships similar to that of Pacific Savings within a month, said Stephen Katsanos, an FDIC spokesman.
The FDIC and other banking regulators--the Office of the Comptroller of the Currency and the Federal Reserve Board--were pulled into service under President Bush’s proposal to help resolve the mess in the ailing S&L; industry.
Some 350 S&Ls; nationwide are still insolvent, and the seizure of Pacific Savings and three other S&Ls; on Tuesday was the first step in Bush’s plan to take control of all insolvent savings institutions and quickly merge or close them. The joint task force plans to seize 224 S&Ls; in the next few weeks.
Other likely Southern California targets for seizure include the following institutions, with regulatory net worth figures as of Sept. 30:
Westwood Savings & Loan of Los Angeles, minus $222.7 million; First California Savings of Orange, minus $71.4 million; Founders Savings & Loan of Los Angeles, minus $36 million; Arrowhead Pacific Savings Bank of San Bernardino, minus $23.4 million; Signal Savings & Loan of Signal Hill, minus $7.8 million; Perpetual Savings of Santa Ana, minus $11.5 million; Unified Savings of Northridge, minus $15.8 million, and Manhattan Beach Savings & Loan of Manhattan Beach, minus $18.6 million.
Another insolvent S&L;, Carver Savings & Loan of Escondido, was closed Jan. 27 by the Federal Home Loan Bank Board. Carver had reported a negative net worth of nearly $10 million on Sept. 30.
Federal regulators estimated that the Carver closing would cost the bank board about $58 million.
Regulators from the bank board and its deposit insurance arm, the Federal Savings and Loan Insurance Corp., also are part of the joint task force.
“What we’ll be doing is in many respects the same thing FSLIC has been doing,” said Stephen Katsanos, an FDIC spokesman. “But we will be bringing interagency personnel to it, and bringing in considerably more people resources.”
The task force will use about six examiners to review the loans and other assets on the books of Pacific Savings and try to determine what options they have to resolve the problems, said Keith Seibold, an FDIC employee at the S&L; Tuesday. The FDIC, which is spearheading the task force, is acting as conservator for Pacific Savings.
After the first nine months of last year, Pacific Savings had a negative regulatory net worth of $200.3 million, which means its liabilities exceeded is $1.1 billion in assets by that much.
In its current form, Pacific Savings was created in 1981 with the three-way merger of Santa Fe Federal S&L; of Riverside, Oceanside Federal S&L; and Pacific Federal S&L; of Hollywood. But Pacific Savings traces it roots to 1890 when the S&L; in Riverside was founded.
It moved its headquarters from Hollywood to Costa Mesa in 1982 specifically to take part in the Costa Mesa downtown redevelopment.
Pacific Savings built its own corporate headquarters and a branch office in a Spanish-style complex on Newport Boulevard and financed a matching project, the $22-million Courtyards retail and commercial complex that opened just a block away in 1985.
By then, however, the S&L; already was beginning to falter. It began selling its well-regarded branch offices as it aggressively entered the market of commercial and industrial lending and real estate investing. In 1983, it posted a $7.2-million annual loss, largely from loans and investments that went bad.
The S&L; invested millions of dollars in the then-booming states of Texas, Colorado and Louisiana in the early 1980s, and lost it all when oil prices fell, plunging those three states’ economies into depression.
In 1987, regulators stepped in and replaced all of Pacific’s top management, contracting with GlenFed to take over the job of operating the S&L--the; state’s 29th largest with more than $1.2 billion in assets at the time.
Since then, Lynch, the acting president, has revived the S&L;’s moribund branch operations, now down to 11 branches, and steered it more toward traditional mortgages and safer investments.
A HISTORY OF PACIFIC SAVINGS BANK
1981
* Pacific Savings Bank, a mutual association owned by depositors rather than outside shareholders, is created through the three-way merger of Pacific Federal S&L; of Hollywood, Oceanside Federal S&L; and 81-year-old Santa Fe Federal S&L; of Riverside. The new association begins selling many of its 60 branch offices to raise capital.
1982
* Moves headquarters from Hollywood to Costa Mesa to participate in that city’s new redevelopment activity.
1983
* Begins commercial and industrial real estate lending and real estate syndication activities.
* Posts annual loss of $7.2 million.
1984
* Converts from a federal charter to a state charter to take advantage of more liberal California laws governing investment activities by S&Ls.;
* Reports annual loss of $9.9 million.
1985
* Announces its first commercial development, the $22-million Courtyard commercial and retail complex in downtown Costa Mesa.
* Agrees to sell 13 of its 25 remaining branches to American S&L.;
* Reports annual profit of $4.6 million.
1986
* Retained by Federal Home Loan Bank in February to manage insolvent American Diversified S&L;, also in Costa Mesa.
* Relinquishes American Diversified management contract in August.
* Regulators in September begin pressuring Pacific to shore up its own wobbly finances. Pacific begins discussing merger with HF Holdings Inc., headed by William E. Simon, the former Treasury secretary, and Preston Martin, former vice chairman of the Federal Reserve Board.
* Reports $109.5-million loss for the year, largely from soured real estate investments in Colorado, Louisiana and Texas. Net worth falls to negative $69.3 million.
* HF Holdings says it no longer is interested in purchasing Pacific.
1987
* Required by regulators to write down the value of real estate assets in economically depressed Texas and Colorado.
* Top management replaced by regulators in June. Glendale Federal Savings hired to take over management. Despite this action, Pacific is not placed in receivership or under conservatorship, a normal step when an S&L;’s financial condition has deteriorated.
* Posts $113-million annual loss.
1988
* Sells its 50% stake in a data processing subsidiary in Covina to raise cash.
* Begins marketing insurance, through a subsidiary, at its 11 remaining branch offices. Also begins offering consumer and adjustable mortgage loans.
* Executives trumpet “signs of recovery” as first quarter net loss drops to $6.1 million.
* Pacific’s president announces the S&L; is “ready for sale” and says an operating profit in the second quarter cut first 6 months’ loss to $17.7 million.
* Pacific’s third-quarter financial report, the most recent available, brings loss for the first 9 months to $26.9 million.
1989
* New federal regulatory group made up of S&L; and banking regulators places Pacific into conservatorship under President Bush’s day-old S&L; bailout program.
PACIFIC SAVINGS BANK AT A GLANCE
Headquarters: 234 E. 17th St., Costa Mesa
Number of branches: 11
Employees: 550
Total assets (9/30/88): $1.1 billion
Total loans (9/30/88): $930.8 million
Total deposits ((9/30/88): $1.1 billion
Net regulatory capital: -$200.3 million
Net loss (9 months ended (9/30/88): $26.9 million
Chief executive: Harvey A. Lynch
Sources: Pacific Savings Bank, Federal Home Loan Bank Board and Sheshunoff Information Services Inc.
